Fundamentals & corporate actions
What is EBITDA and why do analysts use it instead of net income?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) strips out financing and non-cash accounting items, letting analysts compare operating performance across companies with different capital structures or tax situations.
How it works
Because EBITDA excludes real cash costs like interest and capital expenditures, it can overstate a company's actual cash-generating ability, especially for capital-intensive or heavily leveraged businesses.
An example
Two companies with identical EBITDA but very different debt loads can have drastically different net income and cash flow once interest expense is included.
Risk & limitations
EBITDA is not a GAAP measure and can be manipulated; always cross-reference it with net income and free cash flow.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.